Defined benefit and cash balance plans: deduct far more than $72,000
If your income is high and steady, a defined benefit plan or a cash balance plan can let you deduct much more than any 401(k) allows. It also costs more, needs an actuary, and commits the business to funding it every year.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 9, 2026.
How it works
A defined benefit plan promises a specific yearly benefit in retirement. An enrolled actuary calculates how much the business must put in each year to fund it. The employer makes most or all of the contributions, and the amount is not your choice each year: there are minimum funding rules.
Key facts for 2026
| Item | What to know |
|---|---|
| Highest yearly benefit | $290,000 (2026) |
| Pay that counts | Up to $360,000 |
| Who sets the contribution | An enrolled actuary, every year |
| Filing | Form 5500 with Schedule SB each year, signed off by the actuary |
| Missing a contribution | Excise taxes can apply for failing minimum funding or making excess contributions |
| Cost | Most costly and most complex plan type |
Is it for you?
What is good
- Your profit is high and steady for several years
- You are 45 or older and want to catch up on savings
- You want a deduction well above $72,000 a year
- You have few employees, or you can afford to cover them
What to know
- Your income swings a lot from year to year
- You have many employees, which raises the cost
- You prefer to choose each year how much to put in
- You do not want the yearly actuary, filing and funding commitment
What to do
Check the fit with a CPA
We look at your profit trend, staff and goals, and whether a defined benefit plan or a simple 401(k) is the better fit.
Get an illustration from an actuary or plan administrator
It shows the contribution range for your age and pay, and the cost for employees.
Set up the plan before year-end
Allow several weeks for the plan documents, and arrange to fund it.
Keep it up
Each year: actuary's funding report, contribution, Form 5500 with Schedule SB, and the deduction on your return.
We are a CPA firm, not an actuary or plan provider, and we coordinate with them. Book a 20-minute call.
Common questions
How much can I contribute?
It depends on your age, pay and target benefit. The plan promises a benefit, up to $290,000 a year in 2026, and an actuary works out the contribution needed each year to fund it. Owners in their 50s often have the highest contribution limits.
Who is a good fit?
An owner with high, steady profit who wants to save more than a 401(k) allows, is comfortable committing to yearly contributions, and has few or no employees, or can afford to cover them.
What is a cash balance plan?
A type of defined benefit plan that shows each person an account balance, which makes it easier to understand. The same funding and filing requirements apply. Ask your actuary about the design.
Can I combine it with a 401(k)?
Often yes. Many owners pair a defined benefit or cash balance plan with a 401(k), subject to combined deduction limits. Your actuary and tax adviser coordinate the two.
What does it cost to run?
The IRS calls a defined benefit plan the most costly and most administratively complex type of plan. You pay an actuary, a plan administrator and filing fees, plus the contributions themselves.
Official sources
- IRS: Defined benefit plan
- IRS Notice 2025-67 (2026 limits)
- IRS: Retirement plans for self-employed people
Let's talk about your taxes, your business, your plans.
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